The new European Payment Services Directive

 

The new European Payment Services Directive signifies the days of organisations operating as lone entities are quickly waning.

In our increasingly interconnected world, companies are finding that collaborating with others can help them create new business opportunities, gain competitive advantage and foster innovation.

According to IBM’s recent global C-suite study, more than twice as many CxOs recognise the need for external innovation as those that recognise the need for internal innovation.

One enduring theme emerged from the study: organisations realise they can no longer compete on their own.

In fact, almost 70% are looking to increase their external partnerships.

Companies in all industries are turning to APIs to help build these bridges to other organisations and unlock each partner’s unique data and capabilities.

>See also: How business can drive innovation with the new Payment Services Directive

This is especially true in the financial services industry where APIs can enable organisations to share data and applications using easily accessible standards and platforms.

Recent regulations, such as the European Payment Services Directive 2 (PSD2) will have a major, direct impact on the banking industry in the European Union and European Economic Area.

According to the directive, any banks that operate in Europe will need to provide wider access to their customer data and payment processing systems to registered third-party providers ranging from traditional banks to app providers.

This happens in the form of APIs that can expose access to data and services.

To capitalise on PSD2 opportunities and comply with mandates, financial services organisations must implement a broad array of APIs, including multiple APIs that enable third-party providers to offer access to service subscription, payment initiation and account information.

From a business and technical perspective, this requires work across numerous dimensions.

Providers must not only incorporate ways to request account information and initiate payments, but also form external partnerships and develop ecosystem that ensure necessary service-level agreements are met.

>See also: Rise of the collaborative programmable bank

Ultimately, the goal is to become more customer orientated by providing enhanced products and services – even if they come from trusted third parties.

While APIs represent the basic tools for application developers and data scientists, more importantly they represent a new form of business model innovation, bringing together disparate functionality to create completely new customer experiences.

What’s more, they have the potential to redefine the nature of partnerships between banks and FinTechs, allowing them to participate in ecosystems without the traditional need for extensive negotiation and customisation of information systems.

In addition, they enable organisations of all sizes to tap into services –such as customer insights or cognitive computing – that are too difficult, expensive or time-consuming to reproduce in-house.

For example, banks that proactively embrace PSD2 can retain and gain customers by offering new consumer services through innovative apps.

A bank could give customers a global view of their financial situation across multiple current accounts or let customers automatically draw payments from a non-interest-bearing account before using funds from an interest-bearing account.

Partners and consumers can benefit as well.

For instance, a bank could begin providing travel services, taking advantage of relationships with a travel agency to create personalised packages.

The bank could offer those packages at a discount as an incentive to use the bank’s payment APIs, monetising both account access and the payments made possible from many different account types.

>See also: 5 key recommendations for open banking access

These are just a few examples of how the API economy – the commercial exchange of business functions and capabilities using APIs – will help usher in the next level of marketplace differentiation.

Banks that take a proactive approach to PSD2 and opening up their APIs, while embracing changes and modifying their business model, can become disrupters that reap the rewards of shaping the new landscape.

They can gain a first-mover advantage in forging new relationships and partnering with FinTechs to create innovative new services.

Successful banks will see APIs not just as technical tools, but as a source of strategic value in today’s digital economy.

After all, a bank’s data is one of its most valuable assets.
Sourced by Sven Loeschenkohl, global business services Europe vice president for banking & financial markets at IBM

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Nick Ismail

Nick Ismail is the editor for Information Age. He has a particular interest in smart technologies, AI and cyber security.

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